Cheap land deals to help Miller ease pressure on its housebuilding arm

MILLER Group, the Scottish construction firm, expects profit margins in its loss-making housing business to rise substantially in the coming year as the company benefits from buying up cheap land.

The Edinburgh-based group - which trimmed its year-end losses - began building on more than 900 newly-purchased plots in 2010, up from about 300 the previous year. The company plans to buy "quite a bit more" land in the coming months.

Homes built on these sites are expected to deliver profit margins of between 20 and 25 per cent against roughly 5 per cent for houses built on legacy land bought before the market crash.

"We want to get into new sites as quickly as we can, because our new sites will have much better margins," chief executive Keith Miller said.

"It is hard to be precise, but by the end of next year, about 75 per cent (of the sales mix] will be on new sites, and 25 per cent will be legacy."

Miller sold 1,915 homes last year, down 7 per cent from 2009. However, the average selling price rose 5 per cent to 168,000 as the sales mix shifted in favour of larger family housing. Work began at 14 new sites during the year, and at least ten more are due to open. Visitor levels this year are up 18 per cent on the same period in 2010, while sales rates have improved from 0.38 to 0.47 homes per site each week.

Miller said he expected house prices to stabilise this year, but refused to be drawn on when the housing business might return to the black.

"We are certainly expecting to see an improvement, but how big of an improvement remains to be seen," he said.

At the group level, turnover fell 15 per cent to 666m as construction revenues declined amid a planned shift away from short-term capital projects. Construction and housebuilding each contribute about 300m to Miller Group's turnover, with property and mining activities accounting for the rest.

The pre-tax loss fell to 58m, down from 72.4m previously, as the group benefited from lower exceptional costs linked to writing down the value of its assets. Excluding interest payments and exceptional items, Miller posted a profit of 5.3m.

The group also paid off 170m of debt, and currently has about 150m of headroom in the 697m of unsecured lending facilities from Lloyds Banking Group, Royal Bank of Scotland and National Australia Bank. "Advanced discussions" are under way to refinance these facilities, which mature in March 2012.

Miller said although the group's lenders would not necessarily require further debt reduction, the company would "certainly" like to pay off more of its borrowings.Further disposals by the property division - whose November sale of the Varna shopping mall in Bulgaria paid down 94m of debt - are therefore likely.

"Our property business is a trading business, so everything we hold is for sale at some point, except for what is in development," Miller said.

The property division made a profit before interest of 6.9m, against a loss of 7.2m in 2009. Operating profit from construction fell 39 per cent to 9.5m as a result of the anticipated decline in turnover, but was still ahead of expectations.

Meanwhile, the mining business dispatched a record 787,000 tonnes of coal during the year, up 25 per cent on 2009.